Sales of £2m London homes fall after 2012 stamp duty hike - but wealthy investors snap up £5m properties as sales jump by a third

Wealthy property investors continue to feel the impact of stamp duty rises introduced two years ago as the number of sales of properties above £2million in London has fallen by almost a third, according to a new report.

Sales of prime Central London (PCL) homes in the £2-£2.5million price bracket fell by 32 per cent in the year following the Budget 2012, when stamp duty on property above £2million was hiked to 7 per cent, according to figures by upmarket property services firm Huntley Hooper. In contrast, sales of homes below £1.5million fell by just 3.4 per cent.

The hike means that buyers snapping up properties on sale for more than £2million have seen stamp duty costs rising to at least £140,000 from £80,000, Huntley Hooper said.

Prime London housing market: Sales of homes priced between £2m and £2.5m fell by almost a third after stamp duty was hiked in April 2012

But the hike has not stopped investors buying London properties above £5million, as transactions for such homes were up by a third (33.3 per cent) compared to the year before the 2012 hike.

Stamp duty, the tax paid by buyers on the entire purchase price of a property, was raised to 5 per cent in March 2011 for properties above £1million and to 7 per cent in April 2012 on properties on sale for more than £2million.

HOW MUCH STAMP DUTY YOU HAVE TO PAY

Stamp duty is charged at 1 per cent on the sale price of all homes over £125,000.

From there the rates are 3 per cent on homes over £250,000, 4 per cent over £500,000, 5 per cent over £1million and 7 per cent over £2million.

The tax is charged at a flat rate on the whole price. So someone who paid £168,000 — close to the Land Registry’s average house price — would have to stump up £1,680.

Anyone paying £300,000 would be in the 3 per cent band and face a £9,000 bill.

The report, which examined the effects of stamp duty rises in prime Central London, showed that while the 2011 rise was quickly absorbed by the market, the 2012 stamp duty hike continued to influence the price of London prime properties.

Over last year the average price paid per square foot for properties just below the £2million threshold was 16.5 per cent higher than properties sold between £2.1million and £2.2million and some 6 per cent higher than for those in the £2m-£2.1million price bracket.

Huntly Hooper director Ollie Hooper said: 'It is unsurprising that buyers looking to purchase properties in PCL are cautious about investing in homes just over the £2million threshold and choosing instead to look for cheaper properties or extending their search more widely.'

Concerns have been mounting about property prices overheating in London and the South East amid strong interest from foreign investors, and the launch of Government mortgage support schemes such as Help to Buy, which have unleashed a flood of first-time buyers into the market.

The cost of the average home jumeped by almost £16,000 in just a year and London prices were 18.2 per cent higher in March, according to latest figures by Nationwide.

George Osborne announced new measures in last month's Budget in an attempt to tackle the rise of people buying properties through corporate envelopes to avoid stamp duty and leaving empty or under-used.

Currently stamp duty of 15 per cent is levied when residential properties worth more than £2million are bought in this way, but this will be extended to those worth more than £500,000.

This will be brought in from April 2016, while from April 2015 it will be extended to properties worth more than £1million.